Business System Concepts

The word system is widely used. It has become fashionable to attach the word
system to add a contemporary flair when referring to things or processes. People speak of
exercise system, investment system, delivery system, information system, education
system, computer system etc. System may be referred to any set of components, which
function in interrelated manner for a common cause or objective.

# Definition:
The term system is derived form the Greek word systema, which means an
organized relationship among functioning units or components. A system exists
because it is designed to achieve one or more objectives. We come into daily contact with
the transportation system, the telephone system, the accounting system, the production
system, and, for over two decades, the computer system. Similarly, we talk of the
business system and of the organization as a system consisting of interrelated
departments (subsystems) such as production, sales, personnel, and an information
system. None of these subsystems is of much use as a single, independent unit. When
they are properly coordinated, however, the firm can function effectively and profitably.
There are more than a hundred definitions of the word system, but most seem to
have a common thread that suggests that a system is an orderly grouping of
interdependent components linked together according to a plan to achieve a specific
objective.
The word component may refer to physical parts (engines, wings of aircraft,
car), managerial steps (planning, organizing and controlling), or a system in a multi
level structure. The component may be simple or complex, basic or advanced. They
may be single computer with a keyboard, memory, and printer or a series of
intelligent terminals linked to a mainframe. In either case, each component is part of
the total system and has to do its share of work for the system to achieve the intended
goal. This orientation requires an orderly grouping of the components for the design of a
successful system.
The study of systems concepts, then, has three basic implications:
 1. A system must be designed to achieve a predetermined objective.
2. Interrelationships and interdependence must exist among the
components.
3. The objectives of the organization as a whole have a higher priority than
the objectives of its subsystems. For example, computerizing personnel
applications must conform to the organization’s policy on privacy,
confidentiality and security, as will as making selected data (e.g. payroll)
available to the accounting division on request.

Characteristics of a System

Our definition of a system suggests some characteristics that are present in all
systems: organization (order), interaction, interdependence, integration and a central
objective.

1 Organization
Organization implies structure and order. It is the arrangement of
components that helps to achieve objectives. In the design of a business system, for
example, the hierarchical relationships starting with the president on top and leading
downward to the blue – collar workers represents the organization structure. Such an
arrangement portrays a system – subsystem relationship, defines the authority structure,
specifies the formal flow of communication and formalizes the chain of command. Like
– wise, a computer system is designed around an input device, a central processing
unit, an output device and one or more storage units. When linked together they
work as a whole system for producing information.

2 Interaction
Interaction refers to the manner in which each component functions with
other components of the system. In an organization, for example, purchasing must
interact with production, advertising with sales and payroll with personnel. In a
computer system, the central processing unit must interact with the input device to
solve a problem. In turn, the main memory holds programs and data that the
arithmetic unit uses for computation. The interrelationship between these
components enables the computer to perform.

3 Interdependence
Interdependence means that parts of the organization or computer system
depend on one another. They are coordinated and linked together according to a
plan. One subsystem depends on the input of another subsystem for proper
functioning: that is, the output of one subsystem is the required input for another
subsystem. This interdependence is crucial in systems work.
An integrated information system is designed to serve the needs of authorized
users (department heads, managers, etc.) for quick access and retrieval via remote
terminals. The interdependence between the personnel subsystem and the organization’s
users is obvious.
In summary, no subsystem can function in isolation because it is dependent on
the data (inputs) it receives from other subsystems to perform its required tasks.
Interdependence is further illustrated by the activities and support of systems analysts,
programmers, and the operations staff in a computer centre. A decision to computerize an
application is initiated by the user, analyzed and designed by the analyst, programmed
and tested by the programmer, and run by the computer operator. None of these persons
can perform property without the required input from others in the computer center
subsystem.
Figure 1-1: Organization Structure – An Example

Formal Organizational
positions
President

Vice- President Vice- President Vice- President

Sales Production Accounting

Department Head Departing Head Lines of Authority

Assembly Painting

Workers Workers

4 Integration
Integration refers to the holism of systems. Synthesis follows analysis to achieve
the central objective of the organization. Integration is concerned with how a system is
tied together. It is more than sharing a physical part or location. It means that parts
of the system work together within the system even though each part performs a
unique function. Successful integration will typically produce a synergistic effect and
greater total impact than if each component works separately.

5 Central objective
The last characteristic of a system is its central objective. Objectives may be real
or stated. Although a stated objective may be the real objective, it is not uncommon for an
organization to state one objective and operate to achieve another. The important point is
that users must know the central objective of a computer application early in the
analysis for a successful design and conversion. Political as well as organizational
considerations often cloud the real objective. This means that the analyst must work
around such obstacles to identify the real objective of the proposed change.

# Elements of a System
In most cases, systems analysts operate in a dynamic environment where change
is a way of life. The environment may be a business firm, a business application, or a
computer system. To reconstruct a system, the following key elements must be
considered:
1. Outputs and inputs.
2. Processor(s).
3. Control.
4. Feedback.
5. Environment.
6. Boundaries and interface.

1 Outputs and Inputs

A major objective of a system is to produce an output that has value to its user.
Whatever the nature of the output (goods, services, or information), it must be in line
with the expectations of the intended user. Inputs are the elements (material, human
resources, and information) that enter the system for processing. Output is the outcome of
processing. A system feeds on input to produce output in much the same way that a
business brings in human, financial, and material resources to produce goods and
services. It is important to point out here that determining the output is a first step in
specifying the nature, amount, and regularity of the input needed to operate a system. For
example, in systems analysis, the first concern is to determine the user’s requirements of
a proposed computer system – that is, specification of the output that the computer is
expected to provide for meeting user requirements.
2 Processor(s)
The processor is the element of a system that involves the actual transformation of
input into output. It is the operational component of a system. Processors may modify the
input totally or partially, depending on the specifications of the output. This means that as
the output specifications change so does the processing. In some cases, input is also
modified to enable the processor to handle the transformation.

3 Control
The control element guides the system. It is the decision – making subsystem that
controls the pattern of activities governing input, processing, and output. In an
organizational context, management as a decision – making body controls the inflow,
handling and outflow of activities that affect the welfare of the business. In a computer
system, the operating system and accompanying software influence the behaviour of the
system. Output specifications determine what and how much input is needed to keep the
system in balance.
In systems analysis, knowing the attitudes of the individual who controls the area
for which a computer is being considered can make a difference between the success and
failure of the installation. Management support is required for securing control and
supporting the objective of the proposed change.

4 Feedback
Control in a dynamic system is achieved by feedback. Feedback measures output
against a standard in some form of cybernetic procedure that includes communication and
control. Output information is fed back to the input and / or to management (Controller)
for deliberation. After the output is compared against performance standards, changes can
result in the input or processing and consequently, the output.
Feedback may be positive or negative, routing or informational. Positive feedback
reinforces the performance of the system. It is routine in nature. Negative feedback
generally provides the controller with information for action. In systems analysis,
feedback is important in different ways. During analysis, the user may be told that the
problems in a given application verify the initial concerns and justify the need for change.
Another form of feedback comes after the system is implemented. The user informs the
analyst about the performance of the new installation. This feedback often results in
enhancements to meet the user’s requirements.

5 Environment
The environment is the “suprasystem” within which an organization operates. It is
the source of external elements that impinge on the system. In fact, it often determines
how a system must function. For example, the organization’s environment, consisting of
vendors, competitors, and others, may provide constraints and, consequently, influence
the actual performance of the business.

6 Boundaries and interface

A system should be defined by its boundaries – the limits that identify its
components, processes and interrelationship when it interfaces with another system. For
example, a teller system in a commercial bank is restricted to the deposits, withdrawals
and related activities of customers checking and savings accounts. It may exclude
mortgage foreclosures, trust activities, and the like.
Each system has boundaries that determine its sphere of influence and control.
For example, in an integrated banking – wide computer system design, a customer who
has a mortgage and a checking account with the same bank may write a check through
the “teller system” to pay the premium that is later processed by the “mortgage loan
system.” Recently, system design has been successful in allowing the automatic transfer
of funds form a bank account to pay bills and other obligations to creditors, regardless of
distance or location. This means that in systems analysis, knowledge of the boundaries of
a given system is crucial in determining the nature of its interface with other systems for
successful design.

# Types of Systems
The frame of reference within which one views a system is related to the use of
the systems approach for analysis. Systems have been classified in different ways.
Common classifications are: (1) physical or abstract, (2) open or closed, and (3) “man –
made” information systems.
 1 Physical or abstract systems
Physical systems are tangible entities that may be static or dynamic in operation.
For example, the physical parts of the computer center are the officers, desks, and chairs
that facilitate operation of the computer. They can be seen and counted; they are static. In
contrast, a programmed computer is a dynamic system. Data, programs, output, and
applications change as the user’s demands or the priority of the information requested
changes.
Abstract systems are conceptual or non-physical entities. They may be as
straightforward as formulas of relationships among sets of variables or models –
the abstract conceptualization of physical situations. A model is a representation of
a real or a planned system. The use of models makes it easier for the analyst to
visualize relationships in the system under study. The objective is to point out the
significant elements and the key interrelationships of a complex system.

2 Open or Closed Systems

Another classification of systems is based on their degree of independence.
An open system has many interfaces with its environment. It permits interaction
across its boundary; it receives inputs from and delivers outputs to the outside. An
information system falls into this category, since it must adapt to the changing
demands of the user. In contrast, a closed system is isolated from environmental
influences. In reality, a completely closed system is rare. In systems analysis,
organizations, applications and computers are invariably open, dynamic systems
influenced by their environment.

A focus on the characteristics of an open system is particularly timely in the light of

present – day business concerns with computer fraud, invasion of privacy, security
controls, and ethics in computing. Whereas the technical aspects of systems analysis deal
with internal routines within the user’s application area, systems analysis as an open
system tends to expand the scope of analysis to relationships between the user area and
other users and to environmental factor that must be considered before a new system is
finally approved. Furthermore, being open to suggestions implies that the analyst has to
be flexible and the system being designed has to be responsive to the changing needs of
the user and the environment.
Five important characteristics of open systems can be identified.
1. Input from outside: Open systems are self – adjusting and self-regulating. When
functioning properly, an open system reaches a steady state or equilibrium. In a
retail firm, for example, a steady state exists when goods are purchased and sold
without being either out of stock or overstocked. An increase in the cost of goods
forces a comparable increase in prices or decrease in operating costs. This
response gives the firm its steady state.
2. Entropy: All dynamic systems tend to run down over time, resulting in entropy
or loss of energy. Open systems resist entropy by seeking new inputs or
modifying the processes to return to a steady state. In our example, no reaction to
increase in cost of merchandise makes the business unprofitable which could
force it into insolvency – a state of disorganization.
3. Process, output and cycles: Open systems produce useful output and operate in
cycles, following a continuous flow path.
4. Differentiation: Open systems have a tendency toward an increasing
specialization of functions and a greater differentiation of their components. In
business, the roles of people and machines tend toward greater specialization and
greater interaction. This characteristic offers a compelling reason for the
increasing value of the concept of systems in the systems analyst’s thinking.
5. Equifinality: The term implies that goals are achieved through differing courses
of action and a variety of paths. In most systems, there is more of a consensus on
goals than on paths to reach the goals. Understanding system characteristics helps
analysts to identify their role and relate their activities to the attainment of the
firm’s objectives as they undertake a system project. Analysts are themselves part
of the organization. They have opportunities to adapt the organization to changes
through computerized application so that the system does not “run down.” A key
to this process is information feedback from the prime user of the new system as
well as from top management.
The theme of the process of designing information systems borrows heavily from
a general knowledge of systems theory. The objective is to make a system more efficient
by modifying its goals or changing the outputs.

3 Man – Made Information Systems

 Ideally, information reduces uncertainty about a state or event. For example,
information that the wind is calm reduces the uncertainty that the boat trip will be
pleasant. An information system is the basis for interaction between the user and the
analyst. It provides instruction, commands and feedback. It determines the nature of the
relationships among decision-makers. In fact, it may be viewed as a decision center for
personnel at all levels. From this basis, an information system may be defined as a set of
devices, procedures and operating systems designed around user based criteria to produce
information and communicate it to the user for planning, control and performance. In
systems analysis, it is important to keep in mind that considering an alternative system
means improving one or more of these criteria.
Many practitioners fail to recognize that a business has several information
systems; each is designed for a purpose and works to accommodate data flow,
communications, decision making, control and effectiveness. The major information
systems are formal, informal and computer based.
Formal Information system
A formal information system is based on the organization represented by the
organization chart. The chart is a map of positions and their authority relationships,
indicated by boxes and connected by straight lines. It is concerned with the pattern of
authority, communication and workflow. Information is formally disseminated in
instructions, memos, or reports from top management to the intended user in the
organization. This structure also allows feedback up the chain of command for follow –
up. In Figure 1-1 input form the environment provides impetus for policy decision by top
management. Policies are generalizations that specify what an organization ought to do.
Policies are translated into directives, rules and regulations and transmitted to lower-level
management for implementation. The output represents employee performance.

# Categories of Information
There are three categories of information related to managerial levels and the
decision managers make. The first level is strategic information, which relates to long –
range planning policies that are of direct interest to upper management. Information such
as population growth, trends in financial investment and human resources changes would
be of interest to top company officials who are responsible for developing policies and
determining long-range goals. This type of information is achieved with the aid of
Decision Support System (DSS).
The second level of information is managerial information. It is of direct use to
middle management and department heads for implementation and control. Examples are
sales analysis, cash flow projection and annual financial statements. This information is
of use in short – and intermediate -range planning – that is months rather than years. It is
maintained with the aid of management information systems (MIS).
The third information level is operational information, which is short-term, daily
information used to operate departments and enforce the day-to-day rules and regulations
of the business. Examples are daily employee absent sheets, overdue purchase orders and
current stocks available. Operational information is established by data processing
systems (DPS). Figure 1.4 shows the same.
The nature of the information and managerial levels is also related to the major
types of decision making: structured and unstructured decision making. An organizational
process that is closed, stable and mechanistic tends to be more structured, computational
and relies on routine decision making for planning and control. Such decision making is
related to lower-level management and is readily supported with computer systems. In
contrast, open, adaptive, dynamic processes increase the uncertainty associated with
decision making and are generally evidenced by a lack of structure in the decision –
making process. Lack of structure as well as extra-organizational and incomplete
information makes it difficult to secure computer support. Table 1-2 summarizes the
characteristics of decision making and the information required at different managerial
levels.
Figure 1-4: Management and Information Levels in a Typical Organization.

Management Information Level System Support

Level

Upper
Strategic
Planning
Information

Middle Management control

information

Lower Operational
Information

Therefore, in designing an information system, the analyst needs to determine the

type of information needed, the level of the information, how it is structured and in what
format it is before deciding on the system needed to produce it. This is another reason for
having a background in systems theory and organizations.

# Informal Information Systems

The formal information system is a power structure designed to achieve company
goals. An organization’s emphasis on control to ensure performance tends to restrict the
communication flow among employees. As a result, an informal information system
develops. It is an employee based system designed to meet personnel and vocational
needs and to help solve work – related problems. It also funnels information upward
through indirect channels. In this respect, it is a useful system because it works within the
framework of the business and it’s stated policies.
 In doing a systems study, the analyst should have a knowledge of the chain of
command, the power-authority-influence network, and how decisions are made to get a
feel for how much support can be expected for a prospective installation. Furthermore,
knowledge about the inner workings of the employee- based system is useful during the
exploratory phase of analysis. Employee cooperation and participation are crucial in
preventing sabotage and training users. Since computers cannot provide reliable
information without user staff support, a proper interface with the informal
communication channels could mean the difference between the success and failure of
new systems.

# Computer – Based Information Systems

A third class of information system relies on the computer for handling business
applications. The computer is now a required source of information. Systems analysis
relies heavily on computers for problem solving. This suggests that the analyst must be
familiar with computer technology and have experience in handling people in an
organizational context.

# Management Information Systems (MIS)

The computer has had a significant impact on the techniques used by management
to operate a business. The level of the manager in the organization is also a factor in
determining the kind of information needed to solve a problem. Lower – level
management needs detailed internal information to make day – to – day, relatively
structured control decisions. Higher – level management, for whom long – range
objectives are the primary concerns, requires summarized information from a variety of
sources to attain goals. In either case, management action is based on information that is
accurate, relevant, complete, concise, and timely. MIS has been successful in meeting
these information criteria quickly and responsively.
MIS is a person – machine system and a highly integrated grouping of
information – processing functions designed to provide management with a
comprehensive picture of specific operations. It is actually a combination of information
systems. To do the job, it should operate in real time, handling inquires as quickly as they
are received. Management information must also be available early enough to affect a
decision. Operationally, MIS should provide for file definition, file maintenance and
updating, transaction and inquiry processing and one or more databases linked to an
organizational database. Within a MIS, a single transaction can simultaneously update all
related data files in the system. In so doing, data redundancy (duplication) and the time it
takes to duplicate data are kept to a minimum, thus insuring that data are kept current at
all times.
A key element of MIS is the database – a non-redundant collection of interrelated
data items that can be processed through application programs and available to many
users. All records must be related in some way. Sharing common data means that many
programs can use the same files or records. Information is accessed through a data base
management system (DBMS). It is a part of the software that handles virtually every
activity involving the physical database.
There are several advantages to a data base system:
1. Processing time and the number of programs written are substantially reduced.
2. All applications share centralized files.
3. Storage space duplication is eliminated.
4. Data are stored once in the database and are easily accessible when needed.

The two primary drawbacks of a database are the cost of specialized personnel
and the need to protect sensitive data from unauthorized access.
The primary users of MIS are middle and top management, operational managers and
support staff. Middle and top management use MIS for preparing forecasts, special
requests for analysis, long – range plans and periodic reports. Operational managers use
MIS primarily for short- range planning, periodic and exception reports. The support staff
finds MIS useful for the special analysis of information and reports to help management
in planning and control. Providing data for use in MIS is the function of most levels of
personnel in the organization. Once entered into the system, the information is no longer
owned by the initiating user but becomes available to all authorized users.
Today’s typical MIS poses several problems. Most MIS reports are historical and
tend to be dated. Another problem is that many installations have databases that are not in
line with user requirements. This means that many MIS environments have not been
congruent with the real world of the user. Finally, an inadequate or incomplete update of
the database jeopardizes the reliability for all users.

A major problem encountered in MIS design is obtaining the acceptance and

support of those who will interface with the system. Personnel who perceive that their
jobs are threatened may resist the implementation of MIS. In understanding both
technology and human behavior, the analyst faces the challenge of selling change to the
right people for a successful installation.

# Decision Support Systems (DSS)

One reason cited in the literature of management’s frustration with MIS is the
limited support it provides top management for decision making. DSS advances the
capabilities of MIS. It assists management in making decisions. It is actually a
continually evolving model that relies heavily on operations research.
Gorry and Morton Coined the term decision support system (DSS). The origin of
the term is simple:
Decision – emphasizes decision making in problem situations, not information
processing, retrieval, or reporting.
Support – requires computer-aided decision situations with enough “structure” to
permit computer support.
System – accentuates the integrated nature of problem solving, suggesting a
combined “man”, machine, and decision environment.
Beginning with management decision systems in the early 1970’s the concept of
interactive computer – based systems supporting unstructured decision making has been
expanded to include everything but transaction processing systems. A typical early
definition required an interactive computer – based system to help users use data and
models to solve unstructured problems. There are authors today who view DSS as an
extension of MIS, DSS as independent of MIS, or MIS as a subset of DSS. The
commonly accepted view in the literature views DSS as a second – generation MIS. MIS
is generated when we add predefined managerial reports that are spun out of the
transaction processing, report generation and online inquiry capabilities – all integrated
with a given functional area such as production MIS or personnel MIS. DSS result from
adding external data sources, accounting and statistical models and interactive query
capabilities. The outcome is a system designed to serve all levels of management and top
management in particular, in dealing with “what if” unstructured problem situations. It is
a system with the intrinsic capability to support ad hoc data analysis as well as decision –
modeling activities.
The intelligence phase of decision making involves the awareness of a problem at
a symptomatic level; it requires a closer look at the problem and a through evaluation of
the variables and their relationships. The more intelligence management has about the
cause of a problem, the better is the likelihood of designing a good decision. A DSS can
provide intelligence through information retrieval and statistical packages.
The design phase of decision making focuses on the evaluation of decision
alternatives. During this phase, computer – based deterministic or stochastic models may
be used for decision design. DSS plays a major role in decision design under uncertainty.
The output of the model(s) is the basis of the choice phase of decision-making.

# Summary:
A system is orderly grouping of interdependent components linked together according to
a plan to achieve a specific objective. Its main characteristic are organization, interaction,
interdependence, integration and a central objective. To construct a system, system
analyst must consider its elements- input and output, processors, control, feedback, and
environment. System are classified as physical or abstract, open or closed, and man-made
information systems. A system may be schematic, static or dynamic. An information
system is an open system that allows inputs and facilitates interaction with the user. The
main characteristic of an open system are input from outside, processing, output,
operation in cycles through feedback, differentiation, and equifinality. Three level of
information in organization that require a special type of information system. Strategic
information system for long range planning policies and upper management. Managerial
information system helps middle management and department heads in policy
implementation and control. Operational information system helps the daily information
needed to operate the business. Future emphasises on the decision support system not on
information processing, it requires a computer aided environment and accentuates a
combined man and machine and decision environment.